Europe set for rebound, UK GDP report on the radar

It was a quiet day on the global markets yesterday as there were no major political or economic stories to get traders excited.

Equity markets in Asia as well as Europe lost a little ground, but keep in mind they are well above lows of late January. The surge in positive sentiment that was witnessed last week was largely as a result of intervention by the Chinese authorities, so one could argue the rally way artificial.

Yesterday, equity dealer in Europe weren’t given a reason to hold onto their long positions, so they unwound some of them. It was the same old story whereby stocks that have some connection to China underperformed. Luxury brands, tourism, mining as well as energy stocks were hit. The declines weren’t that big so traders were only a little worried. The US session was also quite but the mood was more upbeat as the S&P 500 went on to set another record high.

The health crisis in China is getting worse as the death toll has now exceeded 1,000 while the number of confirmed infections has topped 42,000. Stock markets in Asia are broadly positive despite the situation.

Politics around the globe has become more unpredictable in recent years. Yesterday it as announced that Annegret Kramp-Karrenbauer (AKK), the head of Germany’s largest party, the Christian Democratic Union, resigned, and AKK will not be looking to replace Angela Merkel as Chancellor. Ms Merkel has been a major influence in Germany as well as the EU in recent years, and AKK was seen as her likely successor. The news adds a little more political instability to the eurozone, which is in need of stability as eurozone governments might be called upon to introduce fiscal stimulus in the medium-term.

The Irish general election over the weekend threw up a surprise as Sinn Féin appeared to have won the popular vote. The left-wing can’t win a majority in the Dáil – the lower house of the Irish parliament, as they didn’t contest enough seats, but it is likely they will have some part of the next Irish government. The Irish stock market lost ground yesterday as dealers were worried the next administration in Dublin won’t be as friendly to businesses.

It was another difficult day for oil yesterday as concerns about the coronavirus situation in China continued to chip away at market confidence. The nation is the largest importer of oil in the world so traders are fearing for the worst in terms of demand prediction.

At 9.30am (UK time), the UK fourth-quarter GDP reading will be posted and the consensus estimate is 0.0% on a quarterly basis, and 0.8% on an annual basis. At the same time the following reports will be posted too, industrial output, manufacturing output as well as construction output, and traders are expecting 0.3%, 0.5% and -0.5% respectively. The trade deficit is tipped to widen to £10 billion from £5.25 billion.

At 3pm (UK time) the JOLTS report will be posted and the reading is tipped to be 7 million, which would be an improvement on the 6.8 million in the November report.

There are a number of central bankers speaking today so volatility in currency markets might tick up. Christine Lagarde, the ECB chief, will be speaking at 2pm (UK time). Jerome Powell, the head of the Fed will be testifying before the Financial Services Committee at 3pm (UK time). Mark Carney, the BoE head, will be testifying before the Lords Economic Affairs Committee at 3.35pm (UK time). All three central banks seem content to keep monetary policy on hold for now, so the updates are unlikely to give away any major clues about future policy.

EUR/USD – has been pushing lower since late December and while it holds below the 50-day moving average at 1.1091, the bearish move might continue. Support might be found at the 1.0900 area. A break above 1.1172 should pave the way for 1.1249 to be retested.

GBP/USD – while it holds above the 1.2900 area the wider positive move should continue. A break above 1.3284 should pave the way for the 1.3500 area to be retested. A break below 1.2900 should pave the way for 1.2768 to be tested.

EUR/GBP – surged on Monday but while it holds below the 0.8600 mark, the broader bearish trend is likely to continue. A drop below 0.8387 might bring 0.8276 into play. Resistance might be found at 0.8600.

USD/JPY – has pushed higher and while it holds above the 50-day moving average at 109.25 the wider bullish trend should continue, and it might retest the 110.00 area. A move below 108.30 might put 107.65 on the radar.

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